Correlation Between Alibaba Group and Darden Restaurants

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Can any of the company-specific risk be diversified away by investing in both Alibaba Group and Darden Restaurants at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Alibaba Group and Darden Restaurants into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Alibaba Group Holding and Darden Restaurants, you can compare the effects of market volatilities on Alibaba Group and Darden Restaurants and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Alibaba Group with a short position of Darden Restaurants. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alibaba Group and Darden Restaurants.

Diversification Opportunities for Alibaba Group and Darden Restaurants

0.64
  Correlation Coefficient

Poor diversification

The 3 months correlation between Alibaba and Darden is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holding and Darden Restaurants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darden Restaurants and Alibaba Group is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Alibaba Group Holding are associated (or correlated) with Darden Restaurants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Darden Restaurants has no effect on the direction of Alibaba Group i.e., Alibaba Group and Darden Restaurants go up and down completely randomly.

Pair Corralation between Alibaba Group and Darden Restaurants

Given the investment horizon of 90 days Alibaba Group Holding is expected to generate 2.85 times more return on investment than Darden Restaurants. However, Alibaba Group is 2.85 times more volatile than Darden Restaurants. It trades about 0.46 of its potential returns per unit of risk. Darden Restaurants is currently generating about 0.31 per unit of risk. If you would invest  8,720  in Alibaba Group Holding on October 29, 2022 and sell it today you would earn a total of  3,118  from holding Alibaba Group Holding or generate 35.76% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Alibaba Group Holding  vs.  Darden Restaurants

 Performance (%) 
       Timeline  
Alibaba Group Holding 
Alibaba Performance
21 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Alibaba Group Holding are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating fundamental drivers, Alibaba Group sustained solid returns over the last few months and may actually be approaching a breakup point.

Alibaba Price Channel

Darden Restaurants 
Darden Performance
5 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Darden Restaurants are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Darden Restaurants is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Darden Price Channel

Alibaba Group and Darden Restaurants Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Alibaba Group and Darden Restaurants

The main advantage of trading using opposite Alibaba Group and Darden Restaurants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alibaba Group position performs unexpectedly, Darden Restaurants can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Darden Restaurants will offset losses from the drop in Darden Restaurants' long position.
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The idea behind Alibaba Group Holding and Darden Restaurants pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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Check out your portfolio center. Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.

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